You have to hand it to Draghi & Co. Without so much as lifting a finger (or if you prefer “pressing the money print button”), they have managed to keep the Eurozone markets buoyant through the summer holidays. Politicians and Central bankers have kept the Algo machines purring, as they keep making the right noises. Comments such as, “don’t bet against the Euro”, “ECB to buy periphery bonds to maintain a cap on yield gap with German Bunds”, “Spain to seek fully fledged bailout” have all bruised the “shorts”. 

The Bernanke show also came and went with more words, no action. They remain prepared to start QE3 but not quite now. You may well ask, “if not now, then when”? With US elections round the corner, and the Republicans beating down on the Fed actions to date, it is now unlikely that there will be QE3 in 2012.  

The August ECB meeting shot “blanks” and the markets initially fell but then gave Draghi the benefit of doubt, and more time. The buoyancy in the markets has allowed Italy to successfully place €4bn of 10-year paper and European corporates to raise almost €7bn last week alone. However, in a worrying development, a €3bn 10-year offering by the EFSF ended up undersubscribed.

The next ECB meeting on September 6 could be a “tell”. If the ECB does not start buying Spanish bonds soon after (say, because Spain does not seek ESFS assistance, which is a precondition for ECB action), volatility is likely to return with a vengeance. Furthermore, if the German courts rule against (or strongly criticise) the ESM on 12 Sept (they are deciding whether the sovereign rights of the German people are being infringed by the changes suggested to the ESM), all hell will break lose. FYI, Morgan Stanley sees a 40 percent chance that the Court bans Germany from ratifying the ESM treaty.

Meanwhile, the fundamentals continue to deteriorate across Europe. Greece is broke (is, has been, and now likely will continue to be), unemployment, and consequently, social strife are increasing. Politicians and Central Bankers continue to play a dangerous game of feeding the debt problem instead of solving it.

If you thought 2012 has been volatile to date, hang on because “you ain't seen nuthin' yet”.

Many central bankers in the past have made solemn pledges stating “we will do what it takes to preserve the integrity of [name your currency]”. Such a statement usually sparks off a short covering rally amongst the “speculative” community, but inevitably ends up with lower prices. Recall the efforts made by the Bank of Japan to keep USD strong vs. JPY over the years. It currently fetches just JPY 79 to USD 1, a breath away from its all-time low.

In short, these pledges rarely work. Draghi also added the immortal words, “believe me, it will be enough”, words that may come to haunt him soon enough. However, as the statement was made, the equity markets shot up, sovereign bond yields for the peripheral countries fell and the Euro moved from 1.20 to 1.23 in a matter of minutes.

Now, there are only two plausible measures to slow down the Euro crisis – fiscal integration amongst the sovereign nations in the EU (i.e. all for one and one for all) or monetisation (i.e. print Euros to buy sovereign debt). Since the first is not in the ECB’s mandate, the Draghi statement was interpreted as suggesting the imminent commencement of a large scale bond purchase operation, backed by printing Euros, if necessary. The markets have also been goosed by apparently leaked statements by members of the Fed that this week’s meeting will see the re-commencement of QE in the US.

There are certain obstacles that the central banks will have to contend with. Although the politicians have supported Draghi, the German Bundesbank was quick to denounce the statement. After all, bond purchases will sit on the ECB balance sheet, most of which is owed to the Germans. In other words, Germany ends up with a greater burden of risk of Italian and Spanish defaults. Without German consent, it’s hard to see a large scale buying operation taking place. On a secondary point, the greater the volume of ECB purchases, the greater the risk of subordination for existing bondholders. This will creep in soon enough after such purchases commence.

In the US, the economic numbers have been dismal with unemployment persistently up. At the same time, sales, GDP, manufacturing and servicing indicators are all down. As the chart below shows, the earnings season in the US has also been a major disappointment. Many pundits have therefore suggested the Fed will start QE3 this week.

However, this is election season in the US and the Fed may not want to be seen as helping the incumbent party. Furthermore, there is growing evidence that inflation is ticking up. If an easing is perceived by the $16 trillion odd creditors of the US bonds as being “slack on inflation”, we could see long term rates spiking up in the US, which is not what the Fed wants. Finally, you have to ask yourself this question, “will the fed embark upon QE3 when the S&P equity index is close to 1400 or will they use that bullet when the markets are much lower”?

What has so far been an extremely technical game of chess between the markets and central banks has been transformed into a poker match. The market will now call “show” and it is up to the central banks to deliver. If their hand falls short “buy will become bye bye”.

The answers will be with us soon enough! 

Following the late night EU summit, London woke up to find the risk markets in a buoyant mood.  The “short term measures” announced at 4.30 am (GMT) this morning included the ability of  ESM and EFSF to directly fund European banks without the attached austerity programs.  Spain, Italy and Ireland have now joined the rock stars who Dire Straits once wrote a song about, complaining they get “money for nothing...”

The news was accompanied by a number of self congratulatory messages, high fives and a group hug amongst the EU leaders. Crudely put, they claim to have “nailed this sucker” (again).  In keeping with the spirit of the summit, Germany duly lost the Euro 2012 semi final to Italy.  This leaves us with Italy vs. Spain and going by bond yields, Italy should just about clinch the final 1-0.    

Since both facilities were designed to buy Sovereign debt and not bank debt, it would have to be ratified by all the 27 EU member states.  Meanwhile, the real solution – to get a credible German balance sheet behind this mess – is off the immediate agenda and EU leaders will wander off into their well deserved summer breaks having saved the Eurozone...for at least a few more weeks. 

ESM - European Stability Mechanism
EFSF - European Financial Stability Facility

The function of the Markets is to set prices efficiently. Any initiative that artificially influences the price setting mechanism introduces false incentives. Influenced markets distort the ability of willing buyers and sellers to set prices correctly. Once the effectiveness of the artificial influences wane, the market corrects violently. This partly explains the crash of 2008 and the ongoing crisis. Bailouts, QE’s, LTRO’s and various schemes to provide liquidity into the market may have staved off a sharp crash but cannot solve a solvency crisis - we simply owe more than we can afford to pay with the assets we hold. Either a credible balance sheet has to stand behind these debts or assets have to be disposed, losses have to be taken and many institutions have to be shut down. This is a difficult task given the inordinate significance of the finance sector on the economy as a whole. A dramatic shrinkage will not only cost bankers their jobs but many ancillary businesses that have grown up around them. It is very unlikely that politicians will take this choice. 

And so we continue with various games to improve liquidity in the system. The ECB announced last week that a wider range of securitized collateral would be allowed. Collateral will require lower haircuts and there is talk of dispensing with the requirements for the collateral to be rated. This presumably is a consequence of major countries like Spain and Italy headed to be rated as “junk” by all the rating agencies. The EU hope that by allowing ABS collateral, banks would bid up prices of real estate linked loans, transforming them into ABS and borrowing against the collateral from the ECB at much cheaper rates. 

Increasingly lower quality collateral weakens the ECB Balance Sheet, which has Germany as the biggest creditor. The Bundesbank is naturally unhappy with this ECB measure. Without Germany's full backing, it will be difficult to implement these collateral changes effectively. So, we have another measure that looks to be headed to the dustbin. 

Meanwhile, Greece wants more money and an easing of austerity measures. It is unlikely to ever keep up to its end of the bargain as its income projections are probably too high and the political cost of the internal devaluation too high. Germany is trying to understand which is cheaper, a Greek exit or continued funding. As it stands, Greece staying in is probably cheaper but if Spain and Italy also has to be bailed out, all bets are off.

Spain released consultants reports on likely capital shortfall at Spanish Banks. Magically, it came in at €60bn on their stressed model. But the market is not buying it. The €60bn capital gap assumes almost €65bn of profits within the banking sector which is optimistic. The asset values in LTV calculations are still considered to be too high. An auction of a selected assets would be better to establish values rather than paid consultants and auditors. The risk of course is that the funding gap is 2X or 3X larger than currently estimated. As we write, Spanish 10 Y Sovereign Bond Yields have crept up above 7%. This suggests that a full bailout of Spain still cannot be ruled out. "Hasta la vista, baby".

QE           Quantitative Easing
LTRO       Long Term refinancing Operations
ABS          Asset Backed Security
LTV          Loan to Value

With New Democracy (ND) scraping through in the Greek elections, Europe appears to have avoided another bullet in this ongoing game of Russian roulette. The Greeks are divided for sure, with Syriza polling almost 27% of the vote, compared with ND at 30%. Right on cue, EU leaders have started making statements that austerity conditions in the previous bailout package will be relaxed, presumably predicated on a new coalition government up and running promptly.

European stock markets and Euro rallied when the markets opened late Sunday night (London time) but have given most of it away during Monday trading hours. Spanish bond yields have crept up above 7% again and its stock market is down 5% from the highs this morning. Dealing room chatter is that with Syriza marginally losing, the EU & G20 standby liquidity injection is no longer needed and the market is disappointed. In other words, the addict craving for another dose of the liquidity drug is willing to push the Greeks over the cliff to get it. This indicates that its wrath will be directed toward Spain and Italy in the coming days and weeks.     

All hopes are now directed westwards and there is talk of additional QE being announced in the US this week. You have to ask yourself though, if the market eagerly anticipates QE3, will the actualisation of that event really make that much of a difference. We may be entering into a different phase of the crisis, where people start questioning the integrity, effectiveness of the doctor and the prescribed medicine, instead of the discipline of the patient.

Are we approaching yet another “cliff event” this weekend? If by some chance, Syriza wins the Greek election outright, it would be interpreted as a “no”  to staying within Europe. A Greek exit, while manageable in isolation, has become infinitely trickier with the opaqueness and size of the OTC derivative market that inextricably links financial institutions to each other and has the potential to cause contagion across the financial sector worldwide. Various sound bites coming out of rating agencies, heads of central banks and even CEO’s of major European banks on the Armageddon that will follow, does not help. EU officials publically discuss potential economic sanctions on Greece, and other EU nations, in the event of a withdrawal or EU breakup. These include capital controls, border controls, and limiting size of ATM withdrawals. None of this inspires confidence!

Greek depositors are already withdrawing close to €1bn a day and at least one UK broker has suspended € FX trading this Sunday (who trades FX on a Sunday??), advising clients to be net flat across € denominated assets this weekend or risk getting closed out on Monday in the ensuing volatility. 

The stakes are high and the rhetoric should give the Greek electorate pause for thought as they go to the polls on Sunday. However, this could all backfire if Syriza does win on Sunday, which could well be a game changer for Europe. The likely first reaction of investors will be to run and ask questions later. On the flipside, if one of the pro austerity parties emerges victorious, look for the “mother of all rallies” next week.   

This is all happening at a time when the crisis around Spain and Italy intensifies. Italian 10 year bonds now yield 6.25% whereas Spain is at 7% (almost 1% higher than last Friday before the announcement of the €100bn bailout). The headline in one of the Italian newspapers says it all! 

It might well take a cliff event for Europe to come together.

We have heard and read many opinions about the need for lawyers to run their firms more like a corporation.  As law firms have sought ways to improve their business and gain efficiencies, there has been an increasing focus on implementing management tools like dashboards to monitor financial performance, utilization and billing.  Firms have also appointed a number of key management positions, leading to the rise of a C-suite of executive non-lawyers working for large partnerships.  Meanwhile, lawyers and support staff face a variety challenges in their efforts to implement real change in their day to practice.  In a recent article published by Forbes, Mark Harris of Axiom Law wrote “…disruptive change looms, and a growing number of law firm managers know they must evolve.”[1]  A key component of this change needs to occur on the front lines of every practice area and every case through the smart application of analytical technology to enhance day-to-day activities.  Some of the greatest opportunities for gains can be found in the area of discovery arising from litigation and regulatory matters. 

To incorporate and leverage analytics technology, the first thing a lawyer can do is align their way of thinking about legal problems and solutions with their corporate client’s way of making business decisions today.  Corporate clients understand that data analytics of all kinds is pervasive in today’s business and throughout society. Technology is enabling businesses to harness and distill huge amounts of factual information into useable segments.  Retailers are using analytics to evaluate and influence consumer spending.  Car manufacturers use technology so that cars can adjust speed, position and even react to unexpected events.  Applications of analytical technology can be found across many aspects of manufacturing, medical, financial and other industries.  Businesses are expanding their suite of technology to incorporate automated intelligence to assemble, curate, analyze, and even create new information to enrich a myriad of functions in their particular business and to impact their customers’ experience.  The point is, business people at all levels understand that critical decisions can, should, and need to be made based on thoughtful compilations of information. Those same compilations can be used to spotlight the areas that need more detailed examination.  Legal professionals can take a moment to reflect on the extent to which they are using technology to essentially achieve the same results as their clients. 

Please stay tuned for our next blog entry where we will discuss practical application and acceptance of advanced technologies in the legal arena, where you can  learn more about how Navigant’s Legal Technology Solutions practice helps corporations and law firms align business and legal objectives.

In a previous post, I discussed how data visualization can be used to enhance your day job, but how do you ensure your visualizations are effective? Depending on the scope of the project, days or months may be spent researching, designing, and testing dashboards in hopes of improving insight into the data metrics that make your department and company tick. With such a big time investment, it is in your best interest to ensure the visuals are effective in their purpose and, perhaps more importantly, that they are user-friendly so people will actually adopt it into their daily routine. In my experience, the best dashboards are simple, add context, and provide the user the ability to drill down to more granular data.

1. Keep it Simple! This is a big one. There is some amazing functionality built into data visualization software, such as Tableau and Pentaho, and I have learned the hard way how easy it is to attempt to include it all in one dashboard. There are maps, scatterplots, heat maps, and tree charts – all with hundreds of color, shape, and size combinations! But, trust me when I say that no matter how amazing a tree map with 58 categories may look visually, a simple bar chart or line graph will always be more intuitive and easy to interpret.

2. Add Context. Direct access to key performance indicators by themselves can certainly be very valuable. However, doesn’t this information always have more meaning with context? How are we doing compared to other departments within the same company? Compared to external competitors? Compared to last year during the same quarter? Arm your user with the information needed to truly assess successes and shortcomings by providing appropriate benchmarks.

3. Drill-Down Capability. Do not attempt to cram every conceivable detail into a single, one-page dashboard. Instead, design a dashboard to act as a springboard that contains just the most high-level information available. From here, users can then click or filter to drill down into details based on their specific interests and requirements. For example, a starting page may contain financial information for an entire corporation. From there, the manager of a certain region should have the ability to filter only on his or her region’s information (perhaps with insight into other regions’ performance as a benchmark). Perhaps another user may want to drill all the way down to specific transactions and customers. By thinking of all potential users and their specific motives, you can create a “one-stop shop” that allows the user to create their own experience.

In 1949, an author by the name of Eric Arthur Blair published a book that has become synonymous with the idea that “big brother is watching.” Better known by his pen name, George Orwell, Mr. Blair masterfully crafted a story of totalitarian oversight and government control. Whether or not that control has manifested itself is beyond the scope of this article, but the idea of technological advance and privacy violations has never been more public. Not a day goes by that we do not see a story in the news about data breaches compromising millions of user records, or law enforcement officials overstepping their search warrants to monitor suspects. 

In the first substantive article in my Forensics of Mobile Devices series, I am going to discuss a concept and forensic artifact known as geolocation data. Referring to geolocation data as a single artifact, though, is a bit misleading.  Geolocation data refers to any information stored on a device that assists with determining the geographic location of the device at any given time. This type of data exists as information in pictures, logs of wireless network connections, the Internet Protocol (IP) address that is used to access the Web, and even the information contained in call logs, text messages, and emails.

To fully understand the impact that geolocation data has on litigation, let us examine a real case where this data was pivotal (A client company hired a forensic examiner to investigate allegations that a former employee may have taken client lists and product schematics when he resigned. Examination of the former employee’s computer, Dropbox, and iCloud account confirmed the employer’s suspicions. The forensic examiner was given authorization to remediate the contacts and information from the computer, Dropbox and iCloud. During the quality check of the remediation process, it was discovered that contacts removed from iCloud had reappeared in the former employee’s account.

One of the most common geolocation features in mobile devices today is the iPhone “Find My iPhone” feature. “Find My iPhone” allows an Apple phone owner to locate their device if lost or stolen. Through global positioning system (GPS) coordination, the phone can be isolated to an almost exact location.

In the case study at hand, the geolocation data provided by the “Find My iPhone” feature on the iCloud web application was able to determine that a previously unknown, undisclosed iPhone was associated with the former employee’s iCloud account. Examination of the specific location of the new device revealed that it was located in Las Vegas at a conference center where a professional trade show involving a product that the client company sold was taking place. Without geolocation data, this critical fact may not have been discovered.

The types and quantities of geolocation data on mobile devices could easily fill multiple articles. The need to consider the forensic value of geolocation data increases as mobile device usage grows. Its importance in business litigations will also continue to grow as the conclusions and statistics of my first article manifest themselves in the upcoming months and years.

This post is the third in a multipart series exploring the front end of litigation involving data requests, loading, validation and preparation for analyses for large data sets.

As outlined in previous posts, Big Data presents challenges in all phases of data analytics.  As organizations begin to adopt Big Data strategies and implement new technologies, backend data models are becoming more complex as overlying systems become more sophisticated.  Simply extracting and loading data does not guarantee success; validating data from these models is paramount in order to support effective and accurate analytics in response to regulatory inquiries.

With big data, the impact of “garbage in, garbage out” is exponential as results can be grossly overstated and rework requires significant resources to identify and resolve the issue. A robust data validation program ensures the correct set of data is being utilized and saves everyone both time and money.

When working with clients I follow a two phased validation program that ensures the data is ready for analysis:

Dataset based benchmarks utilize the data received to confirm that the data uploaded is the same as that extracted from the client’s system.

1. Control Totals: Record counts; min and max of relevant data fields; and total, min, max and average of relevant numeric fields.
2. Confirmation of Field Definitions: Use the data dictionary to identify fields subject to specific business rules and constraints (e.g. cannot be NULL, only have values 1-9) and test fields for values outside of the constraints.  This also includes cross-referencing fields with a corresponding reference table to ensure all values within the field are found within the reference table and vice versa.

Independent benchmarks utilize metrics not directly derived from the data to validate that it aligns with the client’s business trends.

1. Trending Over Time: Trend transaction count and relevant dollar fields over time to identify gaps in data or incorrectly populated fields.  The results should be reviewed with the client to ensure that trends are aligned with business operations.
2. Independently Audited Financial Reports: 10k and other published financial statements audited by an independent third party can be used when data can be related to financial information.  If the published reports do not contain sufficient detail, work papers from the auditor can be used as well.
3. Management Reports: In addition to financial reports, management reports used to manage the business can also be used to validate data.  These reports should be utilized by the organizations management and ideally also presented to the Board of Directors.
4. Other Independent Datasets: Some industries will have publically available data sets or data exchanged as part of business operations.  For example, the healthcare industry utilizes standard format files to process claims for medical services.  835 files are prepared by healthcare providers and submitted to the Center for Medicare and Medicaid Services (CMS) to request reimbursement, while CMS responds with an 837 file indicating which services were paid.  These files can be compared to clinical and billing data to validate it accurately reflects services included in an inquiry.

Even the cleanest data will have anomalies that fall outside of field definitions and have variances when compared to independent metrics.  These discrepancies should be reviewed with counsel and addressed according to the specific inquiry.  Careful documentation of assumptions will ensure that analytics are fully supported and withstand scrutiny from regulatory agencies.

In my first post of this series, I discussed using common spreadsheet applications to help increase efficiency in daily workflows, allowing for an increased focus on more critical tasks. In this post, I’ll focus solely on one of the most common database applications, Microsoft Access, and some quick time saving secrets. Below, I outline guidelines and tips for working with Microsoft Access.

• Forms - while Microsoft Access can offer sophisticated users a powerful database tool it can also be frustrating for novice users. The use of forms can help simplify a MS Access into a user-friendly frontend while retaining all the benefits. However, when working with forms there are a few key rules to keep in mind:

• Start with a ‘standardized’ template - this template will be used as a foundation as you build subforms or secondary forms in the database. By including key information – such as a logo, header information, and ‘main menu’ button - on this initial form time will be saved on formatting in the future.


• Create and connect supporting forms - once the standardized template has been created simply copy this form and modify as needed produce your subforms. The number of subforms used will depend on the database and can vary greatly depending upon the desired process.


• Confirm the business process - once all the subforms have been created linking between the forms is easy. It’s important to ensure that the database created mirrors the intended business purpose and that all the necessary information is captured.
  
  
• Data Validation - by defining the underlying data elements (i.e. the specific columns in the tables that support the forms) the database inherently checks the information as it’s entered into the database via the frontend forms.
  
  
• Reporting - the final step to the database is reporting. Reports can be created using specific predefined criteria or the reports can prompt the user upon execution for criteria. As the need for additional reporting evolves over time customized or modified reports can easily be added to the database.

I have utilized the best practices above while working with a client in the financial services industry. By creating a centralized template for future databases, along with some specialized code to support their forms, this client was able to save days on a project’s schedule. In my final post in this series, I’ll be reviewing combined procedures across applications and offering additional suggestions on how delegating to an automated process will save time.

In 1954, Marilyn Monroe married Joe DiMaggio, the first mass vaccinations against polio took place, and the words “under god” were added to the Pledge of Allegiance. At the same time, a small semiconductor company based in Dallas called Texas Instruments, introduced a new device called a transistor radio. The transistor radio allowed consumers to take their favorite radio stations, which they used to only be able to listen to while sitting around the fireplace, and walk to the corner store or meet friends at the local beach. 

In much of the same way that the transistor radio allowed consumers to take their music with them outside their house, mobile devices have allowed consumers to take their data and put it in their pocket or carry them in a thin magazine size device. According to Cisco Systems, by the end of 2013, there will be more mobile devices on Earth than people. (Source: Cisco, 2013). At the same time, global research firm Gartner forecasts that mobile phones will overtake PCs as the most common web access device worldwide by 2013 [Gartner].

With these trends now evident, companies and their counsel involved in litigation should not discount or neglect the potential for important forensic information to exist on these devices. In this series, I will discuss the importance of forensic information on mobile devices in the context of a potential investigation or litigation. The next article will focus on geolocation or GPS information that is embedded in photos, system information, and other common areas of mobile devices. Future articles will focus on forensic information specific to Apple iOS devices, the importance of handling text messages forensically, and social networking forensics and mobile devices.